Bond Yields Will Probably Stay Low

The bond market continues to cause confusion for experts, writes a Charles Schwab strategist in a recent Barron’s article. Since the end of the recession in 2009, it argues, “consensus expectations have called for higher bond yields and the death of the 35-year bond bull market. Yet, 10-year Treasury yields are now nearly 200 basis points lower than in 2010.” The author opines that, although economic conditions support bond yields above 2%, market expectations are not aligned with the Fed’s plan to continue tightening monetary policy in the second half of the year. “The divergence in these expectations,” it says, […]

Paul Tudor Jones Issues Warning for Fed

The billionaire investor says that “years of low interest rates have bloated stock valuations to a level not seen since 2000,” and the fact that the current market cap-to-GDP ratio is the highest it’s been since 2000 should be “terrifying” to a central banker. This according to a recent Bloomberg article. Jones’ warning echoes that of many other money managers, the article says, who are concerned that stocks are trading at dangerously high levels. The nervousness has heightened, the article says, as “The S&P 500 index is trading at about 22 times earnings, the highest multiple in almost a decade, […]

Twitter and the Fed

Research shows that trading strategies built around tweets in the days preceding Fed meetings have been profitable, writes Steve Russolillo in this week’s The Wall Street Journal. As the use of quantitative investment strategies continues to rise, social-media platforms such as Twitter have become popular sources of intel to gauge investor sentiment, says Russolillo, referring to the frequency and impact of the president elect’s tweets since the election. A study conducted by Andrew Lo, a finance professor at MIT’s Sloan School of Management, and Ph.D. student Pablo Azar analyzed 3.9 million Fed-related tweets from 2007 through 2014 and assigned scores […]

“Irrational Exuberance” Revisited

This past Monday marks the twenty-year anniversary of former Fed chairman Alan Greenspan’s famous speech in which he used the phrase in reference to then-stretched equity valuations. In last week’s Wall Street Journal, Steven Russolillo writes, “His call was spectacularly wrong—at first.” Russolillo offers a Greenspan quote from a WSJ interview: “If you rate me on my irrational exuberance forecast, I get a C. But analytically, it was describing a process that I thought we had to be very concerned about.” The phrase, which has been part of the financial world lexicon ever since, seemed to only boost the market—which […]

“Presidential Cycle” Stunted by the Fed says Grantham

The phenomenon of robust stock market gains during the third year of a president’s term—coined the “presidential cycle” by fund manager Jeremy Grantham—may have been “killed off” by the Fed, according to an article in the Financial Times. Research conducted by Grantham, founder of the GMO fund management group in Boston, analyzed stock gains during the first, second and fourth years of presidential terms going back to 1932 and found that average gains during those years were 0.2% per month as compared to between 0.75% and 2.5% during the third year. This led to his prediction that the U.S. market […]